The Alternative Investment Fund Managers Directive (AIFMD) entered into force on July 2013, with the goal of defining a regulatory and reporting framework for hedge, real estate and private equity funds and their Investment Managers (AIFMs). This framework aimed to provide enhanced investor protection, similar to the one provided by the existing regulation on mutual funds (including UCITS funds), pension funds and their managers.

The Directive defined the guidelines for the authorization, operation and transparency of all EU AIFMs managing and promoting (and non-EU fund managers promoting) alternative investment funds (AIF) in the European Union. The intention was to mirror an approach that had already been successfully implemented on retail UCITS funds: rather than regulating the funds, directly regulating the fund managers.

The European Commission designed the AIFMD to be the game-changer, in an effort to regulate the alternative investment sector, making it more controllable and less risky for target investors.

Prior to its implementation, the AIFMD was heavily criticized and debated. Most of the industry players believed that it would negatively impact the asset management sector in the EU, as it would be inefficient and too costly for existing and new EU-based AIFMs to comply with AIFMD requirements. Additionally, they thought this would also prevent non-EU AIFMs from promoting their products to investors in the EU.

To date, such fear seems overestimated, as the number of new AIFMs and AIFs continues to increase, suggesting that the industry has adapted and responded positively to the AIFMD. The number of authorizations from the CSSF to Luxembourg-based AIFMs has reached 155 to date, and there are currently many more applications expected to succeed in the coming weeks and months.

Moreover, the European legislator has investigated the risk of putting out of business the smallest or weakest players in a very diverse industry by including a proportionality principle and offering an interesting - though still underexploited - VC fund passport regime.

Nevertheless, the AIFMD has brought to life a definite evolution of AIFMs. All service providers (including depositaries, administrators and external valuators) have also been affected by the new regulations. Although, what remains behind closed doors are their efforts to adapt their own guidelines.

As a professional depositary of alternative assets under AIFMD in Luxembourg and the Netherlands, with over 3 billion euros under depositary, and a fund administrator with a proven track record in servicing the alternative investments sector, we have closely followed the implications of the AIFMD. We have led the implementation process on behalf of some of our clients, who were first in the firing line and it became clear that clients had great expectations for more efficient third party AIFM solutions.

We are among those who believe that there is significant potential in further developing robust third party AIFM platforms leveraging on a solid capital base and integrated processes.

Stéphane Haot

Group Chief Commercial Officer